Subprime Crisis Culprit

By Deane Barker on March 25, 2007

The Subprime Loan Machine: Turns out this looming crisis in the subprime mortgage market is all our fault.

The rise and fall of the subprime market has been told as a story of a flood of Wall Street money and the desire of Americans desperate to be part of a housing boom. But it was the little-noticed tool of automated underwriting software that made that boom possible.

Automated underwriting software spawned an array of subprime mortgages, like those that required no down payment or interest-only payments. The software effectively helped move what was a niche product only a decade ago into the mainstream.

[…] critics say the push for speed influenced some lenders to take shortcuts, ignore warning signs or focus entirely on credit scores.

[…] automated underwriting reduced the average cost to lenders of closing a loan by $916. The software quickly weeds out the very riskiest of applicants and automatically approves the rest.



  1. You don’t blame Smith & Wesson for every murder committed with their firearems. Compliance, regulatory and audit rules are in place and need to be part of the process regardless of tools that might be used to decrease the ‘cost to close’ time by improving the process whether through workflow, document management, reusable services/calculations, etc, which improve overall speed. My guess is the business saw dollar signs around how many more loans they could close by using tools to speed up the process, without also looking at implementing tools or requirements around risk analysis for each application, because that slows things down. Blame also lies with customers, read the fine print. Due diligence. Buyer Beware.

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